Pros and Cons of a Wholesale Coffee Roaster Business vs. Coffee Shop Business
In this post you’ll learn:
- The differences between a wholesale coffee roaster and coffee shop business
- What is a wholesale coffee roaster?
- The challenges and benefits of being a wholesale coffee roaster
- The challenges and benefits of a coffee shop business
Folly Coffee Roasters is a St. Louis Park, MN coffee roaster and I’m writing these from the perspective as a business based on our experiences as a Minneapolis/St. Paul Twin Cities coffee roaster. However, I believe these experiences are true to any area one may be running or thinking about starting a coffee business.
Should I start a coffee shop or wholesale coffee roaster business?
As a wholesale coffee roaster, the most common questions I receive are, “When are you opening a coffee shop?” or more simply, “Where is your coffee shop located?”. Coffee shop and coffee roaster are often used interchangeably, but are two entirely different types of businesses and business models. I received a piece of advice from a coffee shop owner very early in business planning that was very valuable to me. The shop owner said, “If you are going to start a coffee business, start as a coffee roaster or a coffee shop first, then decide if you want to do the other later on.”
He went on to urge me to focus on the type of business I was more passionate about. If it was coffee shop design, customer service, barista skills, drink & menu creation etc., start a shop first. If the passion was more focused on the coffee and coffee beans, focus on coffee roasting. My obsession was the coffee, so this advice led me to the wholesale coffee roaster business model.
What is a wholesale coffee roaster?
A wholesale business is a business that sells goods/services to another business to resell to the end user. In the coffee industry, this means as a wholesale coffee roaster, we sell roasted coffee to other businesses to resell. Types of businesses we sell to include bulk coffee to coffee shops, restaurants, cafes, hotels, and more. We also sell retail bags to grocery stores, retailers, and independent stores. This requires the coffee is sold at a price to these businesses that allows them to make the necessary margin in reselling to their customers. This is also known as Business to Business, or B2B model.
A coffee shop purchases coffee from wholesale coffee roasters to resell as brewed coffee, espresso, espresso drinks and more. Many coffee shops also purchase retail coffee bags to sell in their shops. A coffee shop is a B2C, or Business to Consumer model.
Folly Coffee is primarily a wholesale coffee roaster, with the only B2C component being the online shop, which is essentially a virtual version of retail store. For a more in depth breakdown of how the Folly Coffee business model has shifted over our 4 years in business, check out this recent episode of the Folly Coffee Podcast.
The Pros vs. Cons of a wholesale coffee roaster vs. coffee shop
Pros of wholesale coffee roaster
Increased focus on coffee sourcing, quality, roasting
While the business strategy side of a wholesale coffee roaster can be challenging (see “New Customers” under “Cons of wholesale” below), by focusing only on coffee roasting, there is an increased focus on the coffee itself with fewer distractions. Developing brewing and espresso recipes for customers is necessary, but the core responsibility and focus of a wholesale coffee roaster is to source and roast the best coffees possible.
Less overhead and management
The number of people required to run a wholesale coffee roaster is much lower than a coffee shop. Outside of large expenses like coffee roasting machines, packaging equipment, and a delivery vehicle, the capital needs of a coffee roaster are relatively low. Material needs can be limited to packaging and boxes. Physical spaces do not need to be conventionally attractive if not open to the public, requiring less investment into design. Management is easier with simple and consistent schedules and responsibilities.
Flexibility of time
While any business will demand large amounts of time, whole coffee roasting business tend to be more project & task based. The time required to be at the business is the time it takes to complete the tasks and projects of the week vs. a coffee shop which requires a staff during hours of operation.
Cons of wholesale coffee roaster
Lower margin
Because the coffee is being sold to a business to be resold as a retail offering or as brewed coffee and espresso, a wholesale coffee roaster must sell at lower margins than a B2C business to allow the necessary margin for the businesses reselling the coffee. Be sure to consider the margin requirements of each different type of business before determining pricing or building out a business plan.
Little to no consumer interaction
Because the coffee is being sold to businesses, you do not have interaction with the end consumer of the coffee. Packaging becomes even more important in telling your story at retail and educating café/restaurant customers about your coffee to communicate to consumers is key, but can often be lost in the busy interactions of a coffee rush.
Loss of control of end product
Once coffee beans are sold, there is still a very important step in a quality cup of coffee; the brewing. You have less control of the coffee brewing as a wholesaler. Customers buying bags of coffee will be brewing at home and café/restaurants will be brewing in their businesses. Creating educational resources for retail customers and educating the teams at each business is very important because of this.
New Customers
Without a physical location for someone to discover your coffee and/or generate word of mouth, it falls on the wholesale coffee roaster to find new customers. It takes a lot of work to grow a customer base. This also comes with unique challenges including ordering & delivery systems, providing equipment and service, and customer management as the business grows.
Pros of coffee shop
Higher Margin
Generally speaking, brewed coffee, espresso, and espresso drinks are a much higher margin offering than wholesale coffee.
Customer experience
A coffee shop owner has a higher level of control over the customer experience from the time they walk in the door to when they leave. This includes everything from the atmosphere, barista interactions, the coffee they drink, and overall vibe. A positive experience in a coffee shop can create a lifelong customer.
Control of end product
A coffee shop is serving directly to the end consumer with no steps in between. They have control over the brewing parameters, water quality, extraction methods, and everything needed to create the best tasting menu possible.
Finding new customers & people
Having a physical space, especially in a high traffic area, creates brand awareness with no additional effort. A brick and mortar location has more customers visiting on a daily basis, increasing the chances of word of mouth and finding new customers in your surrounding areas.
Cons of coffee shop
Higher overhead and management
Opening a coffee shop requires a high initial capital investment into the physical space. This includes updated plumbing, remodeling the interior, furniture, lighting, visual components like artwork, and the necessary equipment to serve coffee and espresso. There are also the added costs of necessary components to be compliant with local food & beverage laws. This along with monthly rent, payroll for a larger staff, and other monthly expenses creates a high overhead. Schedule management of a larger staff is a time consuming and complicated task when paired with the challenges of owning and operating a coffee shop.
Geography
The location of a coffee shop can be a major benefit (see “finding new customers & people” above). However, being tied to a physical location can leave a business susceptible to external influences. Competitor coffee shops can open up nearby. Something as simple as road construction for an extended period of time can greatly hurt business. On the flipside, populations can also increase in an area or new living spaces being built nearby can make a location better.
Unpredictable traffic & forecasting
Over time, predicting traffic becomes easier, but weather and randomness changes the daily and weekly foot traffic coming through a coffee shop. This can make forecasting ordering more challenging and complex when compared to a wholesale coffee roaster.
Interested in partnering with Folly Coffee? Contact us here to set up a time to taste some coffees!
Written by Rob Bathe, Founder/Owner of Folly Coffee Roasters, St. Louis Park Coffee Roaster